This time, let's avoid house-flipping mania

May 26, 2013|Jim Stratton, BUSINESS COLUMNIST

Oh, good.

Apparently, house flipping is once again the cool thing to do in Orlando – the clever man's way to easy cash.

The real-estate research company RealtyTrac. Inc. recently reported that last year Central Florida was the most profitable market in the country for flippers. Short-term owners who bought here and resold within six months made, on average, a 63 percent profit.

I mean, yes, we're all glad the housing market has firmed up and we're beginning to backfill some of the losses suffered when the bubble burst. And mazel tov to those folks who got in last year and turned a quick profit.

But couldn't we all just curl up with a drink and breathe for a bit before jumping into bed with some "can't-miss" deal on a "cozy 3 bdr. 2 ba. with lots of potential?"

Who's up for a little "steady as she goes?"

If the Great Recession taught us anything, shouldn't it be that house flipping is not for the faint of heart – or anyone short of disposable cash? It's the real-estate version of golf.

It looks easy when you watch it on TV, but in reality, it can claim your sanity and your fortune.

Of course, it's easy to lose sight of that when you're drunk on home values that seem to know only one direction. And much of Central Florida was pretty snockered before the bottom fell out.

I remember a young couple who, at the height of the fever in 2006, bought a house on my street in College Park. They paid $265,000 for a place that had 1,400 square feet and all the charm of a cold sore.

Then they spent some time – and a couple of truckloads of cash – fixing the place up. When they were done, it looked great and they put it back on the market.

They started at $379,000 and got no interest.

They dropped the price to $359,000, then to $335,000, then $299,000. Down, down they went, until late 2007, when they sold the place for $282,000 – which normally would have been a nice return. But given the amount of work they'd done, I suspect they were lucky to break even.

They'd gotten in at precisely the wrong time – just as home values began to sink. The same thing happened to lots folks who'd come to view houses as bank machines, not places to live.

This time around, we may see fewer amateur flippers taking the plunge.

Recent data from the Florida Realtors show that about half of all single-family home sales and about three-quarters of townhome deals are all-cash transactions. And that suggests investors – both foreign and U.S. based – are snapping up homes as rentals or short-term resales.

A local agent who's flipped more than 40 houses in the past four years told Sentinel real-estate reporter Mary Shanklin that buyers on average have been sinking $20,000 to $30,000 into each home on renovations.

The upside to all this is that real-estate investors – big or small – tend to have more stomach for the risk involved. They know the market better than average homeowners and, typically, aren't as dependent on the success or failure of a single deal.

The downside is that their willingness to burn cash can cause the market to overheat. Right now, no one seems overly concerned by that because their presence has helped clear out some inventory and boost home values.

But if the market is going to fully heal, we'll have to hit that sweet spot where prices make sense, credit is available and flippers make money off solid investments, not mass delusion.